WHEN: Today, Tuesday, September 17, 2019
WHERE: CNBC's "Squawk Box"
The following is the unofficial transcript of a CNBC interview with Blackstone CEO Stephen Schwarzman on CNBC's "Squawk Box" (M-F 6AM – 9AM) today, Tuesday, September 17th. The following is a link to video of the interview on CNBC.com: https://www.cnbc.com/video/2019/09/17/blackstone-co-founder-stephen-schwarzman-autobiography-squawk-box.html.
All references must be sourced to CNBC.
BECKY QUICK: Welcome back everybody. Blackstone's CEO Steve Schwarzman is with us this morning. He is the author of the new book, "What It Takes: Lessons in the Pursuit of Excellence." And Steve, thanks for being here today.
STEPHEN SCHWARZMAN: My pleasure.
BECKY QUICK: While we were sitting here, this note from Morgan Stanley just hit my inbox. And it takes a look at what it sees in the private markets and tackles what they think are some fiction things. Things like the idea that the private markets have grown too large, too fast. They say that's not the case. And they talk about some of the top names that they like in the space. Blackstone is one of their top picks, one of their top three picks. When it comes to alternative asset managers, they say own it right now. What do you see happening in the private markets and the public markets? What's your take on what's happening?
STEPHEN SCHWARZMAN: Well, it's, I think, Morgan Stanley's on point. You know, we've had an amazing year in the stock market. I think we're up around -- somewhere around 80, 85% top performing company over 50 billion dollars.
BECKY QUICK: Blackstone.
STEPHEN SCHWARZMAN: Blackstone. And part of that is because we're positioned in the alternative asset industry, which is, you would call it private companies. And, you know, we buy companies, we buy real estate, we lend to people who are doing that, we invest in hedge funds. That business is a structurally better business than just buying liquid securities because we can buy all the securities of that company, all the stock. And what we can do is have a growth plan to make that business, if it's a company, accelerate its growth. And the faster it grows the higher the P multiple when we get out and the more people we hire in the meanwhile. And so, we put some leverage on it and if you're growing much faster than the stock market averages and you put leverage on, you'll make probably double the indexes over time.
BECKY QUICK: How do you kind of match that up with what we're seeing with some of the IPOs or potential IPOs that have not fared as well. SmileDirectClub this week. WeWork just announced today, it sounds like they are going to be postponing their IPO. How do you reconcile?
STEPHEN SCHWARZMAN: I think – some of these are immature companies. Some of them have profits and no prospect for profits. And I've seen this happen a few times in my career when people believe things, whether they were counting eyeballs, you know, around the start of the century.
BECKY QUICK: 2001.
STEPHEN SCHWARZMAN: And you get these periods of excess where people get so excited about a concept that they price it on metrics that typically disconnect from reality. And you get, you know, like a bubble.
JOE KERNEN: So, how's your average company doing right now in this economic--
STEPHEN SCHWARZMAN: The company is doing pretty well.
JOE KERNEN: Most companies are doing well.
STEPHEN SCHWARZMAN: Not as good as they were doing like a year, year and a half ago. Manufacturing on the whole is softer. The consumer businesses are holding up really well. Consumer's like 70% of the economy. Some say 72.
JOE KERNEN: The forecast of recession going higher by so many different places. Does that make sense to you?
STEPHEN SCHWARZMAN: I think part of that is technical because of inversions of certain securities which have high correlation. It's sort of now in the game of confidence. If the consumer – we're at full employment, or close to it. If the consumer remains confident, then, you know, with 70% of the economy –
JOE KERNEN: Is oil, is oil -- is that on your radar screen yet? Oil for the consumer, for the global economy?
STEPHEN SCHWARZMAN: Well, what will create a problem is some geopolitical issue, not a normal economic cycle.
JOE KERNEN: We had one. Yeah.
STEPHEN SCHWARZMAN: Well, you just have an introduction to one.
JOE KERNEN: Yes.
STEPHEN SCHWARZMAN: It depends where that goes. You have all these hot spots. And we have our own odd internal political stuff.
JOE KERNEN: Right.
STEPHEN SCHWARZMAN: You know, it can take a country one way or another.
JOE KERNEN: And China.
STEPHEN SCHWARZMAN: So, it's -- well, you've got china. So, for people like ourselves who, you know, we have a company on the one hand and then we've got sort of the risks and call it the whacky world.
ANDREW ROSS SORKIN: When you sit around on a Monday morning in the famous Blackstone meetings, are you talking more about harvesting the investments you currently have or about making new ones?
STEPHEN SCHWARZMAN: I'd say we do both. We are definitely harvesting. But, you know, it's fascinating that there are some really interesting things to buy. The prices are higher. So, interestingly, you have to -- if you're going to pay a higher price, you better get really accelerated growth. Because then it works out. You can't be paying those prices for more traditional companies because it's really hard to make those numbers work.
BECKY QUICK: In terms of what's happening with the trade talks, we've asked you from time to time because you are somebody who speaks to the White House and speaks to leaders in China, you have a good idea what's happening on both sides of this equation. Where would you say we are now in terms of maybe getting a deal?
STEPHEN SCHWARZMAN: Well, it's -- it's the Perils of Pauline. We've been through a lot of difference cycles here in two and a half years. And the reason for that is China has, in the last forty years. had more growth than I think any country in history. It's an astonishing miracle what they did but they did it behind tariff foils, they did it behind markets that are not accessible, they did it with other, you know, approaches to intellectual property than are shared in the developed world. And so, their desire to give all of that up and the very high growth rate is obviously low. On the other hand, the West has really suffered. Developed world has suffered. And we've got 40% of our people, you know, who are really hurting in this country, whether it's can't write a $400 check, don't pay income taxes not because there's something they don't want to do, it's just they're hurt. And so, that leads the developed world to say to China, 'We've got to like rebalance this. This is working for you. It's not working for us.' And so, when you make that kind of approach, they realize that they need to do changes. They've got their own internal political, you know, things going on with their hard liners who just like to continue, the reformers who recognize it's good for China. So, we've had these experiments of getting close. Somebody backing away. Now, as the countries look like they're decoupling. And together, they're between 35 and 40% of the world economy. This is huge, these two countries. These aren't two regular countries. They affect everybody. If you're an emerging markets company and China slows, you can't sell to them. If we start slowing, which we are, China is slowing and Europe is slowing and Europe's going to have a tough time stimulating itself. It's affecting the whole world. So, at this point, this round I think China recognizes that everybody going their own way, U.S. and China decoupling is not good for them. Because it's just going to slow growth rates. And it's going to slow the whole world. So, it's time to get together. And it's interesting, they're sending what I think I saw in your show it was called the low-level delegation. It's not so low. It's Vice Ministers. And the reason they're going to come over, typically, is they're going to tell you what the terms of trade are. This is the pre-meeting and if they do it right, our negotiators will know what's really on the table, which makes it much easier when Liu He, the Vice Premiere and his senior group come over. So, this is set up better than the last thing where people fly across oceans, have a two-hour meeting and say, let's schedule the next meeting. So, we'll see what happens. I would doubt there's a miracle cure in one meeting. It doesn't work like that.
JOE KERNEN: But you think we can deal with China and get some type of reciprocal trust with that? You've dealt there a lot. I just watched the fentanyl piece on "60 Minutes" and I was really sort of disgusted with the behavior of the Chinese and this whole issue. And I'm just wondering. I don't know if I could deal with them on trade.
STEPHEN SCHWARZMAN: Well, what's interesting on fentanyl, I was there in China about three weeks ago. And they went over a whole thing on fentanyl and what they are doing. I don't know when that piece was actually recorded. It was horrific.
JOE KERNEN: Horrific.
STEPHEN SCHWARZMAN: The piece was so scary and so depressing that basically China was sending the stuff in mail order.
JOE KERNEN: No problem doing it either. And knowing full well and know that we've asked them to stop.
STEPHEN SCHWARZMAN: But what they indicated to me, let's assume this is the truth for the moment, there's a huge reorganization going on within China regarding fentanyl to try and shut it down. And if what they said is true, you will see this really going down quickly.
JOE KERNEN: We'll have Rob Portman on later, Steve. So, he's had a lot to do with it.
BECKY QUICK: Steve, thank you so much for being here. The book again is called "What It Takes: Lessons in the Pursuit of Excellence." And we're going to make sure that we want to remind everybody about CNBC's Delivering Alpha Summit. It returns this Thursday. Some of the world's most influential money managers and figures will be there, including Steve, who we're going to be speaking to at the lunch there. Steve, thank you again for being with us. It's great to see you.
STEPHEN SCHWARZMAN: Thanks, Becky.
For more information contact: